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Abstract

This study investigates how small audit firms develop artificial intelligence-enabled environmental, social, and governance (ESG) consulting capabilities through strategic transformation pathways. Drawing upon dynamic capabilities theory and employing a mixed-methods research design, the research integrates qualitative interviews with 28 practitioners across 18 small audit firms and quantitative surveys from 156 respondents representing 87 organizations, supplemented by six in-depth case studies. The empirical analysis reveals substantial capability heterogeneity, with only 12.2% of firms deploying advanced AI applications and merely 11.5% achieving established ESG service maturity levels. A significant positive correlation between AI Intensity Index and Capability Maturity Index (r=0.68, p<0.01) demonstrates mutually reinforcing dynamics between technological adoption and domain expertise development. Cluster analysis identifies three transformation pathway archetypes—Technology-Led, Knowledge-Led, and Balanced—with Knowledge-Led approaches achieving marginally higher success rates (72.3%) compared with Technology-Led pathways (67.5%). The research develops a four-stage transformation pathway model spanning 30-36 months, delineating critical activities, resource requirements, and success indicators across foundation, development, integration, and optimization phases. AI-enabled resource optimization yields average efficiency improvements of 46.2% across operational functions, with report generation achieving 61.7% gains. The findings extend dynamic capabilities theory to resource-constrained professional services contexts and provide evidence-based guidance for practitioners navigating digital transformation in expanding ESG advisory markets.

Keywords

Artificial intelligence adoption ESG consulting capabilities Small audit firms Digital transformation pathways Dynamic capabilities

Article Details

Author Biographies

Cheng Hu, Azman Hashim International Business School, Universiti Teknologi Malaysia (UTM), Jalan Sultan Yahya Petra (Jalan Semarak), 54100 Kuala Lumpur, Malaysia

Cheng Hu is currently pursuing the Doctor of Business Administration (DBA) at Universiti Teknologi Malaysia (UTM). Her research interests include strategic transformation under the ESG agenda and sustainable development in accounting and professional services.

 

Rafidah Binti Othman, Azman Hashim International Business School, Universiti Teknologi Malaysia (UTM), Jalan Sultan Yahya Petra (Jalan Semarak), 54100 Kuala Lumpur, Malaysia

Dr. Rafidah Othman is a finance and strategy scholar with over twenty years of industry experience in Malaysia’s financial sector. Her research focuses on corporate finance, governance, and sustainable business development, providing practical insights into ESG-related strategic transformation in professional service firms.

How to Cite
Hu, C., & Binti Othman, R. (2026). AI-enabled ESG consultancy capability building in small audit firms: a strategic transformation pathway analysis . Future Technology, 5(2), 25–37. Retrieved from https://fupubco.com/futech/article/view/697
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